By Sean Hyman | July 13, 2009
Whoa! What a difference a day makes. Overnight the news came out that Prime Minister Aso of Japan has called an election for August 30th. The way the polls are going, I see that the Japanese are once again disgruntled with their Prime Minister.
I must say, they go through these guys like water! However, this election will likely end the Liberal Democratic Party’s near half-century rule.
Aso also plans to dissolve the lower house of parliament next week.
If a new party gets in power (and that appears to be almost guaranteed), then one thing they are shooting for is a diversification of Japan’s reserves. It appears everyone is jumping on the “dollar bashing” bandwagon lately.
Japan’s opposition party, that is leading in the polls, said that the nation should consider shifting its reserves away from the dollar and buy International Monetary Fund bonds.
The problem? They are the 2nd largest holder of dollars and U.S. Treasuries outside of China (which has already announced plans to do what Japan is now suggesting too)!
So let’s see…China, Japan, Brazil, Russia and India have now all basically “signed on” to the “dollar dumping” party.
This will continue to hurt the sentiment for the dollar and weigh it down. China has over $2 trillion in dollar reserves now and Japan still has over $1 trillion in dollar reserves, so just between the two of them, we’re not talking about any small sum.
I don’t think I’d want to be on the opposing side of their “trade” either. Therefore, the dollar’s days/weeks/months ahead of it are looking more “grim” all the time.
Therefore, look for the U.S. Dollar Index to continue to plummet overall and for other foreign currencies to continue to rise up against it over time.
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